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Loan shortage hits Bangladesh RMG businesses

Fast fashion is at risk of hitting a speed bump if a looming crisis sweeps Bangladesh’s banking sector. Financial institutions in the South East Asian nation face a credit crunch following mass deposit withdrawals in March and soaring levels of non-performing loans.

A full-blown crisis could spill over into Bangladesh’s strongest link to the global economy — the production of textiles and garments for fast fashion brands and retailers such as H&M, American Eagle Outfitters, Zara, Walmart and Target. A banking crisis would have a knock-on effect on global garment supply chain.

Garment factories’ inability to secure loans due to a banking crisis could possibly hold up the supply chain of global clothing retailers. Bangladesh is the largest exporter of readymade garments after China. Knitwear and woven garment exports between July and January accounted for about 83 per cent of its exports.

Loans from commercial banks remain a key source of working capital for many of the thousands of factories in Bangladesh. Years of corruption and poor lending practices have sent levels of bad debt at some banks above 20 per cent, while capital buffers are dangerously low. Irregularities uncovered at two large commercial lenders have sparked a broad run on national savings certificates, a retail savings product, further hurting banks’ balance sheets.